Financial expert Dawn J. Bennett recently wrote an article titled, “The Five Stages of Deutsche Bank Grief,” in which she discusses the potential collapse of Deutsche Bank. According to Bennett, Elisabeth Kübler-Ross’s famous five stages of grief can be seen in the markets. In their usual order, the five stages are denial, anger, bargaining, depression and acceptance.
Deutsche Bank has a high risk-taking culture and the risk of its collapse is real. The bank is connected to a number of other banks and institutions, including the 200 institutions just from its hedge fund business. If the bank fails, it will create a domino effect and have much larger and more intense impact than Lehman Brothers. Deutsche Bank’s assets are approximately $1.9 trillion, and they have a balance sheet about equal to Germany’s gross domestic product (GDP).
As things progress and more retail depositors start to worry and pull out, Bennett says the bank only has a few options— none of which are good. These options include:
- To sell their equity to provide much-needed liquidity.
- To approach the European Central Bank (ECB) for a liquidity bridge, an option opposed by Chancellor Angela Merkel and denied by the ECB for Greek and Italian banks.
- To eliminate billions in unsecured claims and deposits, which could result in a full-blown, systemic bank run with depositors rushing to withdraw their savings.
“And here we are, mired in the throes of Kubler-Ross’s stages of grief,” says Bennett. “We saw denial as the market wanted to go higher on the belief that there would surely be some sort of bail-out, but ultimately going negative. If Germany does bail out Deutsche Bank when it advocated so strongly against similarly helping Greece and Italy, there may well be a full-blown political mutiny in Europe, and the ECB certainly wouldn’t be happy. Of course, the next stage is anger, and that’s easy to see. ‘Who let this situation get so bad? Who can we blame?’ Bargaining follows, as investors look for a way to walk away and take their losses without being hurt further. After that comes the depression of seeing all that money just gone, something we remember all too clearly from 2008 and 2009, when many investors lost from 25 to even 70 percent of their portfolios.”
Bennett says the most important thing is how the acceptance stage is handled. This is the time to determine how to rebuild, she says.
“Systemically, of course, this is a matter for governments and institutions, but markets are made of individuals, and how we each respond is a critical element in how the global economy will respond,” says Bennett. “If we take a defensive position, focus on assets like gold and silver that are likeliest to hold real value in a collapse or crisis, and then rebuild while demanding free markets that are actually free before we opt back in to the ‘system’ that looks set to fail yet again, then these five stages will not have been in vain.”